Couples decline to marry for a variety of reasons. Some are pragmatic, such as protecting health insurance eligibility. Taxes are another reason, as is qualifying for government benefits, like Medicaid or needs-based student financial aid. However, a recent article from the Journal of Accountancy, “Forgoing marriage? Estate planning for unmarried couples,” explains why unmarried couples must protect themselves from life's unexpected but inevitable events.
There is an old saying that marriage is the cheapest estate plan available, and in part, this is true. Here’s what unmarried couples can do to protect themselves.
How are assets titled? Having the home titled as a joint tenancy/ownership with the right of survivorship protects both partners. If one partner dies, full ownership automatically switches to the other partner, with no need for court documents or other paperwork. However, if the intention is for each partner's heirs to inherit the decedent's 50 percent interest in the home, then tenants in common ownership with a solid Will, potentially holding the decedent's 50 percent interest in trust for the surviving partner and then distributing the interest to the decedent's heirs under certain circumstances set forth by the decedent in their Will, may be best.
Beneficiary designations. Each partner should review the beneficiary designations on all applicable financial accounts and products. This includes life insurance, pensions, retirement accounts, and, if possible, bank accounts. If the couple doesn’t want to make each other joint owners of the bank accounts, they may be able to be added as beneficiaries (TOD - transfer on death; POD - pay on death) for all or a portion of the account(s).
Cohabitation agreement. This document clarifies everything from financial responsibilities during and after the relationship, from who will care for a shared pet to the distribution of jointly owned property if there is a breakup. Think of it as a prenuptial agreement for unmarried people.
Financial Power of Attorney. Naming a partner, possibly with a child or other loved one, as an Agent under a Financial Power of Attorney allows the partners to step in and manage each other's affairs if one should become unable to do so for themself. It is also effective if one person travels and needs the other partner to manage daily financial matters.
Health Care Power of Attorney and Living Will/Advance Directive. These documents state a person’s wishes about medical care if they cannot communicate their wishes on their own. It is critical for a partner to be named, with or without another loved one, under a Health Care Power of Attorney, as the partner is not family nor considered "next of kin." Naming your partner allows the partners to make medical decisions for each other. Without it, adult children, siblings, or parents will be the only ones who can make these decisions. This will also permit the partners to access personal health information for each other during an illness or an emergency and make end-of-life decisions, as well as positive care and positive treatment decisions.
Last Will and Testament. Distribution of property or assets not owned jointly or passing by beneficiary designation takes place through the Will. The Will is also used to name an Executor who is in charge of the estate and carrying out the instructions in the Will, as well as a guardian and/or Trustee for minor children. If there is no Will, an unmarried surviving partner may have little or no control over any property or assets, which may be an unintended consequence. Without a Will, the laws of intestacy take control, and usually surviving children, parents, siblings and even distant cousins who are related by blood come before the unmarried partner.
Trusts. As mentioned above, if a partner wants to ensure that the other partner is taken care of in some form upon the first partner's death, a trust can be included in a Will (a Testamentary Trust), giving certain assets to the surviving partner to be available to the surviving partner under certain conditions. Couples with shared real estate investments or assets in more than one state may find using a standalone trust more efficient than passing assets through a Will.
A consultation with an estate planning attorney can provide unmarried couples a clear path to protect each other for the rest of their lives. This is the peace of mind provided by an estate plan.
Reference: Journal of Accountancy (April 30, 2024) “Forgoing marriage? Estate planning for unmarried couples”
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